ABA Urges Change to Diversity Statute
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As part of the 2015 ABA Annual Meeting, the ABA House of Delegates urged Congress to pass sweeping changes to the laws regarding federal diversity jurisdiction over unincorporated businesses. If Congress acts, it would mark the first revisions to the federal diversity statute since the Eisenhower Administration.
In August 2015, the House of Delegates overwhelmingly passed House Resolution 103B. This initiative, submitted by the ABA Section of Litigation, urges Congress to amend the federal diversity statute to provide that unincorporated entities be treated like their incorporated counterparts—as citizens only of the states where each is organized and maintains its principal place of business. Under the current rules, unincorporated entities, such as general partnerships, limited liability companies, and trade associations, have long been treated as citizens of each and every state where any one of their members resides. This multiplicity of citizenships has made federal diversity jurisdiction over such entities both harder to establish and more opaque to litigants, lawyers and courts alike.
A Trap for Unwary Litigants and Judges
Under 28 U.S.C. § 1332, federal courts enjoy diversity jurisdiction when, among other things, at the moment the suit is filed, no party plaintiff and defendant share common citizenship in any one state. Even hidden or latent defects in diversity jurisdiction are unwaivable, requiring courts to immediately dismiss the suit upon discovery—regardless of how far the case has since progressed.
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